Chicago-area home sales, prices rebound in 2013

Existing-home purchases show best annual performance since 2006

Former renters Dan and Mandy O'Malley, formerly of Oak Park, closed on their La Grange Park house in early December after looking for a home since 2012. (Scott Strazzante, Chicago Tribune)

Seven years after crashing in spectacular fashion, the Chicago area's housing market found its footing in 2013, leading to optimism that the darkest days are behind an economic growth engine that fuels the sale of everything from home loans to lawn mowers.

But optimism surrounding the market's turnaround is accompanied by the reality that many of the factors that drove the market last year, including investors, low interest rates and a limited selection of homes, may not play as big a role in 2014. Most economists say 2013 price increases are unsustainable, and more moderate gains this year will lessen the threats to home affordability.

"Less robust would not be a bad thing here," said Michael Gregory, head of U.S. economics for BMO Capital Markets. "You don't want to see a bubble."

During the depths of the Great Recession, unemployment, foreclosures and a mortgage credit pipeline that was all but shut off gripped the housing market. In 2008, home sales in the area totaled fewer than 69,000.

At their worst, average local home values were down more than 33 percent from the market's peak, according to various estimates, causing some homeowners to walk away from mortgages that were far underwater. Affordability was high, but few could qualify for a mortgage.

That situation seemed to reverse itself last year, helped in part by record low mortgage rates and low home prices that nudged buyers into the market.

The final month of the 2013 finished strong, with 8,126 homes in the Chicago area sold, an increase of 8.1 percent from December 2012. The median price in December rose 18 percent from December 2012.

January's numbers are expected to be soft because of subzero temperatures, but looking beyond that, real estate agents and economists anticipate at least a strong first half of the year.

"People have a better sense of comfort," said Linda Levin, a Jameson Sotheby's agent. "There is also a lot of pent-up demand."

But concerns about a lack of listings have carried into the new year.

In December 2012, homebuyers in the Chicago area had slightly more than 45,000 homes from which to choose. Last month, the number of listings totaled 32,000.

Move-up buyers Curtis and Samantha Schatz cast a wide net for properties and looked at 48 homes before settling on the one they moved into last month.

"We looked from Bartlett to Bolingbrook and everywhere in between," Curtis Schatz said. "There was a lot of garbage. The first two times we went out, we looked at 16 houses. There wasn't one that we kept the listing sheet."

Economists also are worried about the lack of first-time buyers in the market, because their absence also thwarts move-up buyers, who first must sell their starter homes.

First-time buyers may be looking to move out of their parents' homes or, with average rents continuing to increase, trade rent for a mortgage. But many find themselves stymied — either they are unable to find suitable homes, or they can't afford the ones they find.

"The big obstacle is the down payment and credit, because a lot of them are strapped with student debt," said Jean Marie Milligan, an agent with Realty Executives Premiere.

Looking for a home since 2012, Oak Park renters Mandy O'Malley and her husband, Dan, were frustrated after putting in offers on several homes that all fell through. That included a Bolingbrook home listed as a short sale but for which the lender increased the purchase price.

When a three-bedroom tri-level in La Grange Park came back on the market after a deal fell apart, they jumped on it.

"We were starting to get nervous," Mandy O'Malley said. "We thought we were going to get priced out of any sort of deal and we'd have to go over what we wanted to spend."

In early December, they closed on the house for $299,900, $100 under budget, and this year they may benefit from rising home prices. An attorney has suggested that they have the home reappraised because they may be able to rid themselves of primary mortgage insurance.

Also helping the local market last year were large investors who entered the Chicago area as faster-recovering prices in other cities priced them out of those markets. Here, they beat out smaller, local investors, scooping up thousands of single-family homes that have been turned into rental properties. Almost 9 percent of homes sold in Illinois last month were sold to institutional investors, according to RealtyTrac.

More telling about the role of large investors in the market was a dramatic jump in the percentage of homes that were purchased with cash, which rose to 43 percent of sales last month from 22 percent in December 2012.

"The investors are down a bit (this year) but they're still out there," said Michael Gobber of Real Living Gobber Realty.